Good evening everyone;
It has been 2 months (May 8th 2016) since my last communication!
Wow – So many factors led to this absence: Working with buyers and sellers , Our home build project, time spent away at the beginning of June and of course family commitments. It has been a bit of a whirlwind.
In the GTA Real Estate Market
The GTA market has been on fire! In the last 2 months we have seen both record sale prices and record low inventory ratios. This combination has meant super speedy sales in all sectors. As free hold properties become even more elusive, buyers are starting to turn to larger apartments as an alternate. Developers are also beginning to shift their focus somewhat by designing a larger number of 2 bedroom and even 3 bedroom units. Over the last 20 years the trend has been to design and squeeze out as many apartments as possible to maximize profit. I purchased 1 bedroom condo plus den back in 2002 that was 780 sqft (City Place by Roger’s Centre). I have a colleague who just bought a 1 bedroom plus den – pre construction that will measure 580 sqft once built. This trend has led to the micro-condo. The market has a clear demand for larger sized apartments and this has sparked buyer’s interests in older buildings that traditionally feature larger floor plans.
Toronto in many ways has considered itself a “baby” New York City and apartment living in New York is the norm, not the exception. Torontonians, with increase population growth and limited free hold inventory will no doubt continue to move in the same direction.
Recent apartment sales that I have facilitated include.
930 Sqft – 1 bedroom condo (Etobicoke)
1400 Sqft – 3 bedroom Co-op apartment (Prime Rosedale)
1130 Sft – 2 bedroom condo (Mississauga)
3300 Sqft – 2 + Bedroom Penthouse Condo (Downtown – near The Eaton Centre)
Smaller units will continue to be attractive to younger first time buyers and investors looking to get into the market. Inventory of these types of suites are significantly higher as people are looking to upsize from such units and builders are still bringing many of these sized apartments to market.
The larger units will be popular with Empty Nesters and Up-sizers. The clear advantage of apartments is their proximately to “choice” neighbourhoods and the city core.
Commercial Real Estate
Smaller commercial mix-used properties are RED HOT. Many purchasers looking for traditional homes are being frustrated with the search. Some have turned their attention to mixed used buildings. The advantage of these buildings are that they tend to line main streets like Bloor st. (great along the Subway line). With apartments above and retail below, the urban buyer gets the benefit of a larger living space, rental income from below and easy access to transit, shopping and services.
There are many things to consider when purchasing this type of real estate – Commercial mortgages, property taxes, insurance etc. etc. I am personally a fan of these types of properties.
Recent mixed use sales I have facilitated
3107 Dundas st. W– 1, 2 bedroom apartment up top with 2000 sqft flower shop below
3138 Dundas St W– 2, 3 bedroom apartments on 2nd and 3rd floors with commercial space on main and basement
Our realty office is located in such a building (3077 Dundas St West) 3 Residential apartments with 4 commercial spaces.
These buildings tend to offer better “numbers” in the city versus other residential rental income properties
| Market Watch (see full reports: May and June) |
Strong Sales Growth Continues in May
June 3, 2016 — Toronto Real Estate Board President Mark McLean announced that there were 12,870 home sales reported through TREB’s MLS® System in May 2016. This result represented a new record for the month of May and a 10.6 per cent increase over the same period last year. In contrast, the number of new listings was down over the same time frame by 6.4 per cent. The decline in listings was experienced in both the low-rise and condominium apartment market segments.
“Whether we’re talking about existing homeowners or people looking to purchase for the first time, there is no shortage of buyers in the marketplace today. So, while the record number of home sales through the first five months of 2016 is not necessarily surprising, it does sometimes mask the larger story in the GTA: the shortage of listings, which has resulted in strong upward pressure on home prices,” said Mr. McLean.
The MLS® Home Price Index Composite Benchmark was up by 15 per cent year-over year in May 2016. Similarly, the average selling price for all home types combined was up by 15.7 per cent over the same period. Low-rise home types, which remained in short supply in many GTA neighbourhoods, experienced the strongest price growth.
“Widespread competition between buyers of singles, semis and townhouses across the GTA has underpinned the robust annual rates of price growth experienced so far this year. With this said, however, it is also important to understand that tighter market conditions for condominium apartments have resulted in price growth well above the rate of inflation in this market segment as well,” said Jason Mercer, TREB’s Director of Market Analysis
| June 2016 |
Spring Market Capped Off with Strong June
July 6, 2016 — Toronto Real Estate Board President Larry Cerqua announced that Greater Toronto Area REALTORS® reported 12,794 residential transactions through TREB’s MLS® System in June 2016. This result was 7.5 per cent higher than the 11,905 sales reported in June 2015. In line with the prevailing trend so far this year, the number of new listings was down by 3.8 per cent.
“As I start my term as TREB President, we are certainly in an interesting environment for ownership housing. There is no doubt that demand is at a record level, but would-be home buyers continue to face an uphill battle against a constrained supply of listings, which has perpetuated strong price growth. Buyers and sellers alike continue to benefit from the value a REALTOR® brings to a transaction,” said Mr. Cerqua.
“As the federal, provincial and local levels of government discuss housing policy in the coming months, issues affecting the lack of supply in the GTshould be of paramount importance. TREB will be undertaking, and making public, results of additional research in the second half of 2016, with the goal of proactively adding to the housing policy discussion,” added Mr. Cerqua.
The MLS® Home Price Index Composite Benchmark was up by 16 per cent on a year- over year basis. The average selling price for all home types combined was up by a slightly higher annual rate of 16.8 per cent to $746,546. The single-detached, semi- detached and townhouse market segments led the way in terms of price growth.
“When TREB surveyed consumer intentions for 2016, we found that the majority of GTA households who were likely to purchase a home continued to be pointed towards some form of ground oriented housing. This is why we continue to see strong competition between buyers in many neighbourhoods where supply remains constrained,” said Jason Mercer, TREB’s Director of Market Analysis.
Mortgage Rates
Mortgage rates are expected to remain the same or possibly even decrease! With Britain holding a national referendum and voting to exit out of the European Union (Brexit) the international stock/money markets became unstable. The US went from a 50/50 chance of raising the federal interest rate to less than 20%. In Canada, the economy has been slightly stagnant and there is virtually no pressure on raising interest rates. Most analysts are not forecasting a rate hike until end of 2017 (if not later).
A current mortgage rate for a 5 year fixed mortgage is hovering around 2.45% -2.6%
6 Unbelievable Facts About Toronto’s Real Estate Market By Nelson Smith – June 28, 2016
May was another record-setting month with 12,870 home sales reported by Toronto-area realtors. Prices inside the city of Toronto hit an average of $782,051, an increase of 8.95% compared with the same month in 2015.
The rest of the Greater Toronto Area did even better. The average price surged to $734,924 compared to $611,665 just a year ago. That’s an eye-popping increase of 18.6%–a remarkable return for an asset class that’s supposed to be mostly a store of value.
These price increases aren’t the only thing unbelievable about Toronto’s real estate market. Here are six more mind-numbing facts.
- $1,285,693
At $782,051, the average price inside Toronto is already pretty impressive, especially to readers who live in smaller cities.
It’s even more impressive if you just count detached houses. The average detached house in Toronto scorched through $1.2 million last month, hitting a record high of $1.285 million. That’s an increase of 15.2% compared with the same month last year.
There’s even talk of gains accelerating over the next few years as bulls point to things like a lack of supply, low interest rates, and continued interest from foreign buyers.
- 2,800,000
Migration is another factor that has helped keep prices high, and there’s zero indication it’s about to slow down. Not only is Toronto still an ideal landing spot for foreigners, but it’s also become a destination for Canadians.
According to a study from the Ontario Government, some 2.8 million new people are expected to call the GTA home in the next 25 years. This will cause population in the region to swell some 43%, hitting 9.5 million by 2041.
- 3.50%
Cap rates are an important gauge of profitability for real estate. Essentially, it measures the return an investor can expect if they were to rent out a property. Cap rates are the annual return after a landlord pays operating expenses–things like maintenance and property taxes–but before taxes on any profits.
These days, the average cap rate for a property in Toronto is approximately 3.5%. Once investors pay the interest on their mortgage and taxes on their profits, there isn’t much left over.
- 20.36
According to Numbeo, a website that measures prices in various cities around the world, it would take 20.36 years of rent for a renter to pay for the average property in downtown Toronto. Amazingly, prices are even higher outside the city centre with the price-to-rent ratio coming in at 22.67 for properties further away from downtown.
- $25,222,523,000
Home Capital Group Inc. (TSX:HCG), Canada’s largest subprime mortgage lender, currently has $25.2 billion worth of loans outstanding. Approximately 90% of these loans are made to people living in or around Toronto.
Real estate bears have long pointed at Home Capital as a risky investment. If Toronto’s real estate goes down in a major way, it’s obvious that investors will punish Home Capital, and punish it hard.
Perhaps cracks are beginning to appear in Home Capital’s armor. Net non-performing loans hit 0.34% in the company’s most recent quarter, up 36% compared with the same quarter last year.
- 11
According to a recent report from Royal Bank, there are 11 housing units under construction per 1,000 citizens in Toronto. According to the economists who wrote the report, the “high-risk” zone is anything more than 4.5 units per 1,000 people.
What should investors do?
There have been calls about Toronto’s real estate being overvalued for close to a decade now. Many investors are convinced the market is in a bubble.
But at the same time, the market continues to chug ever higher. There’s ample evidence that it could go even higher with factors like population growth, a lack of supply, and low interest rates helping keep prices up.
Personally, I would still sit out the market and continue to rent. There’s just too much potential for it to fall at some point in the future. The problem with trying to profit on a downfall is that we just don’t know when it’ll happen. It’s simpler to just avoid the market, content to know renting is a pretty good deal.
My thought on the last comment – Over the last 20 years prices have continued to rise. If you adopt a “rent till the market drops and then buy” strategy you have already lost. Why?
Renting does not build equity over the long haul
If home prices drop substantially it will happen over time not all at once. So when do you actually pull the trigger.
Price drops are usually accompanied by higher interest rates. Your actual cost of ownership may be higher with a lower home price purchase but higher mortgage rate.
I hear many clients talk about interest rates of 8%-18% interest rates over the last 30 years. At 2.5% (today’s rate) you may actually feel the cost of borrowing less than a decade ago.
Construction Blog #15
Today, Saturday July 2nd, the dry walling starts on our home. Since I wrote last there has been numerous of “un-sexy” completed items and even about the same number of items/issues to work through.
Electrical for entire house – Check
Plumbing for Entire House – Check
Insulation For entire House – Check (See pictures attached)
2 sets of Stairs, installed – Checked
Drywall 75% Complete
Over the next month, the interior of the home will dramatically take shape. We will have actual walls and not look at 2x4s anymore. Once all the walls are taped and primed, it will feel like the finish line is at least in sight! The finishes will begin to be installed. Floors, plaster mouldings, etc. etc. It has been 1 year and 3 months since we moved out of our charming (yet problematic) farm house and I forecast at least another 4 months till we move into a functional (not finished) home. We are anxious to move back in but will enjoy the process and the summer as best as we can here on in.
People have begun to ask me – “Would you do it again?” – Everyone expects me to say “No way” – but the truth is that I would. The analogy I use to explain why is the following;
Once I bought a few dining chairs from IKEA. The first chair I assembled took almost 45 minutes. Frustrated, I was ready to trash the whole lot of them. By the time I assembled the 3 chair it was so simple and quick.
I have learned so much through this process that to repeat it would be easier (not easy). But I guess that is anything in life. Experience allows us to make wiser decisions, minimize mistakes, stress less and accomplish goals a little faster.
Enjoy the rest of this beautiful weekend, Anthony